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Ford Tough Situation


Automaker cutting jobs. Big surprise.


Domestic automaker Ford (F) is in a Ford Tough situation. The Federal Reserve has signaled that it's unlikely to cut interest rates further, consumer spending has slowed, gas prices are at an all-time high and there are concerns that demand for trucks, SUVs and other large vehicles the company's known for will wane. So, how does Ford answer these threats? Job cuts.

According to Reuters, "Ford will cut expenses for its white-collar work force by 15 percent over the next two months through job cuts, attrition and other actions."

To be fair, job cuts aren't the only thing Ford's doing to hunker down during these trying times. It's management team has been working like the dickens to trim fat wherever it can and has also announced plans "to cut production by 15% in the second quarter, 15% to 20% in the third quarter and 2% to 8% in the fourth quarter," according to the Associated Press.

There's more. Just four days ago, the company completed the sale of its Land Rover and Jaguar brands to Tata Motors (TTM), a move that reportedly put $1.8 billion in its pocket.

In spite of such aggressive action, there's little sense that management's going to get to holster its surgical scalpel anytime soon: There are often upfront severance costs that must be paid to employees that are let go (especially the white-collar crew). This could translate into future charge-offs against earnings and push profits back even further.

Why the skepticisim? Simple. Beyond the macroeconomic concerns cited above, the company has whipped out the knife several times over the last few years and still oozed an awful lot of red ink (much like an old oil-dirpping Bronco I used to have when I was a teenager).

About 38,000 emoloyees have left Ford through buyout programs and the company has reportedly cut off the ties of about 11,000 more since 2005. Given that Ford is expected to lose a hefty $0.50 per share this year and profits going forward are a big question mark, even more cost-cutting could be coming down the pike.

Still, there are those out there that say Ford, which trades at about two times book value and at rougly 0.08 times sales, is a bargain, and that sooner or later it's going to come back. And there's a chance they're right. I think we all want to believe that because, let's face it, Ford's as true blue American as it gets (to be fair, chief U.S. competitor General Motors (GM) is struggling as well). However, with about $169.2 billion in debt and its bread and butter North American business in a state of decay -- in May, overall North American sales were down 15.8% and its once-popular F-Series trucks witnessed a 30.6% decline -- Ford deserves to trade in the single digits.

Until the company's able to demonstrate that the tide has turned, I think the stock will continue to languish. And given the recent revelation that it no longer expects to post a profit in 2009, tax loss selling could be especially tough this year.

Ford was off $0.06 cents, or almost 1%, in regular trading on Thursday.

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No positions in stocks mentioned.

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